Opening Remarks at AERC Senior Policy Seminar XI on
The Global Financial Crisis and Its Implications for African Economies
Lusaka, Zambia, 6–8 April 2009

By Prof. William Lyakurwa,
Executive Director, African Economic Research Consortium

Honourable Governor of the Bank of Zambia,
Honourable ministers, deputy governors and other policy makers,
Members of the diplomatic corps,
Distinguished guests,
Ladies and gentlemen,

Good morning! Let me welcome all of you to this AERC Senior Policy Seminar on The Global Financial Crisis and Its Implications for African Economies. We are very pleased to be in Zambia once again for an AERC function. Even though this is our first senior policy seminar to be held here, AERC’s relationship with Zambian institutions, particularly the university, goes back many years.

Thus, it gives me great pleasure, ladies and gentlemen, to thank – on your behalf – the Bank of Zambia for joining AERC in holding this important event. We are particularly honoured to have with us today the Governor of the Bank, who has a long association with AERC in a variety of capacities. We appreciate his time, and the wisdom we are confident he will share with us. It is our custom to involve high ranking African policy makers in these seminars, and the urgency and potential for impact of the ongoing economic crisis are well reflected by that target audience. We thank you all for joining us for the proceedings.

The range of our appreciation would be incomplete without due recognition of the authors and presenters of the papers that will be discussed here. As you are all aware, the economic crisis has been unfolding before our eyes, with events changing, sometimes dramatically, from day to day. The presenters have actually been a bit hard pressed to reach conclusions that they could share, for the simple reason that the conclusion is even now not in sight! Despite the challenge, I am thankful to all of them for their enthusiasm and availability to participate in this seminar.

Ladies and gentlemen, let me tell you a bit about the organization sponsoring this seminar. The African Economic Research Consortium in 2008 marked 20 years of leadership in policy-oriented economic research in the continent. AERC was established in 1988 as a public not-for-profit organi¬zation devoted to building capacity for economic policy research into problems pertinent to the management of economies in sub-Saharan Africa. We do this through two main programmes: research and postgraduate training. Our Research Programme uses a flexible approach that allows us to improve the technical skills of local researchers as we determine regional research priorities and strengthen national institutions concerned with economic policy research. Our Training Programme augments the pool of economic researchers in sub-Saharan Africa by supporting collaborative graduate programmes in economics – at both master’s and PhD levels – as well as improving the capacities of departments of economics in local public universities. I should note that the University of Zambia has been part of our network almost since the beginning. The networking aspects of the programmes foster closer ties between researchers and policy makers across the continent, akin to what we will be witnessing throughout this seminar.

AERC Senior Policy Seminars are annual events that have addressed an array of topics relevant to Africa’s policy agenda. Last year’s seminar, for example, considered the impact of another looming global crisis – climate change. Previously, we discussed lessons learnt in the management of commodity booms and how they can be applied to enhance economic development – lessons that are increasingly important every day! Earlier seminars have looked at issues of governance and pro-poor growth; how to finance pro-poor growth; poverty, growth and institutions; financial sector reforms; fiscal policy; revenue mobilization; and the macroeconomic policy framework for poverty reduction. The seminars are intended to inform policy makers about the latest developments in policy research, provide a forum for sharing experiences, and promote a closer relationship between researchers and policy makers.

These and other AERC programmes receive financial support from bilateral governments, multilateral institutions, and private foundations. While I am proud to say that most African countries are active participants in AERC’s activities and provide the much-needed moral and in-kind support, we would encourage your greater financial participation, for which you will be hearing from us soon.

Ladies and gentlemen, only a few months ago some policy makers in sub-Saharan Africa were still saying that the economic crisis sweeping the globe was a problem of the rich countries and would not have much effect on Africa. But, as we know now, no one is likely to be immune from this crisis. The International Monetary Fund has scaled back its 2009 growth forecast for Africa from 6.7% to 3.25%. Similarly, speaking in London ahead of last week’s G20 meeting, the president of the World Bank said that new data show that economic growth in developing countries in general is likely to slow sharply to 2.1% in 2009, a decline of more than 3 percentage points. Even world trade, thought to be beyond such influences, is expected to fall by 6% in 2009 – the first decline in a quarter century and the largest in 80 years. According to the managing director of the IMF, speaking in Dar es Salaam the other week, the threat is not only economic: there is a real risk that millions will be thrown back into poverty, undoing years of growth and threatening the stability of economies in the region. The crisis has, in fact, been described as a financial tsunami! Interesting note, do you remember when the unfettered market idealized by what came to be known as Reagonomics was touted as the rising tide that would lift all boats? That tide has turned into a killer tsunami – the boats themselves are being swept away, even the big ones. Sub-Saharan Africa may be the last to feel the impact, but we are likely to be the hardest hit and the last to get out of its grip.

Why do I say this? Ladies and gentlemen, I submit that this crisis will have far-reaching impacts in Africa – on local investment, on our export earnings, on tourism, on remittances and foreign direct investment, and on aid. In short, most of the aspects of our economic sustenance. We, as a continent, depend heavily on commodity trade, and if our customers in the rich world – or anywhere for that matter – can’t afford to buy what we produce, we won’t be able to sell it. International companies that have been forced to downsize are also cancelling new investments, whether in Africa or elsewhere, hence many FDI ventures are on hold, perhaps indefinitely. Factories here and abroad that are cutting production need far less of the raw material we produce. Ordinary people – even those in rich countries – who are struggling to pay for basic food and health care are not likely to have the dollars or pounds or euros to spare for our cut flowers, exotic coffees and other horticultural produce – even if these are grown in an environmentally friendly way. People who don’t have secure jobs probably won’t be thinking of taking vacations on our beautiful beaches or in our game parks. And as their wages dwindle, members of the African diaspora, so generous to date, won’t have much left to share with their relatives in the villages and markets across this continent.

Ladies and gentlemen, the IMF managing director has said we should brace for the worst economic performance in most of our lifetimes. The World Bank president observes that while people in developed countries are worried about bonuses, in Africa and other developing areas the struggle is for food or no food. The scholars who will present their own research findings over the next couple of days will give you an overview of the problem as it relates to Africa generally. But for the moment I would like to share with you just a few regional examples to give an idea of the potential depth and breadth of the impact of this crisis on our economies and our people.

Falling commodity prices are beginning to hit Africa hard. An estimated 300,000 miners in Democratic Republic of Congo have already been laid off. World copper prices plunged from $8,000 a tonne last June to $3,900 by the end of the year and many mines here in Zambia and elsewhere closed down. Prices are apparently inching back up again, as the Governor may tell us, but in Zambia the impact has been severe since copper contributes some two-thirds of the country’s foreign currency earnings. In Tanzania, President Kikwete told a recent meeting of international investors the grim news that two mineral production projects – in nickel and aluminium – worth over US$3.5 billion in FDI and already at an advanced stage are now on hold. A smaller existing biofuel project is shutting down and taking 70,000 jobs with it. Elsewhere, a conference held last week in Nairobi heard that there has been a 75% reduction in East Africa’s horticulture trade, with flower sales plummeting. Fruits and vegetables have so far been less vulnerable, but they can’t make up the difference.

FDI is expected to fall by 80%, from US$929 billion in 2007 to US$165 billion this year. Tanzania, specifically, a country that has of late become a well-regarded target of FDI, is now revising its projections for 2009 downward, with expectations that FDI will reach $640 million to $650 million this year. This is still a reasonable amount, but is well below the US$700 million originally projected, and it has forced Tanzania to postpone its plans to float an international bond. There has been a major slow down in activities on regional stock markets, with market declines and depreciating currencies among the results of the re-flow of US$800 million back to foreign markets. The Nairobi Stock Exchange has been particularly hard hit, but no stock market in the region has been spared.

We know that, globally, remittances from migrants to their families at home in developing countries have grown astronomically in the last decade – reaching a total of over US$300 billion last year. For some countries remittances are more than the total of foreign aid, and are among the top sources of foreign currency. African countries are no exceptions. But the annual growth rate of remittances to sub-Saharan Africa that had reached 44% in 2007 slumped to an estimated 6% in 2008, meaning that the dollar amount only rose from US$19 billion to US$20 billion, against a rise from US$13 billion to US$19 billion the previous year. Kenya’s remittances have already declined by one-third.

Despite the gloom, the crisis is not without some opportunities. Tanzania’s gold production, as a result of new discoveries and investor flight from securities to gold, will likely increase this year. Merging of the East Africa region’s stock markets is being fast tracked to help buffer the crisis – a merger is expected to facilitate trading, consolidate liquidity, and increase the visibility of regional and international investment opportunities. Keeping these economies healthy is a regional imperative because they are their own best markets – for example, 63% of Kenya’s exports already go to the EAC. The crisis, indeed, gives governments and businesses throughout the region the opportunity to reassess the way they do business, so as to emphasize competitiveness, quality and diversification – with particular stress on competitiveness by improving our infrastructure, reducing power costs, making border crossings less cumbersome, streamlining our ports. In this case, ladies and gentlemen, the choice of action belongs to us.

That is why, ladies and gentlemen, it is not enough for us to say that this is yet another problem caused by the rich world and they should therefore take responsibility for cleaning it up. There are, in fact, a number of voices in the rich world saying exactly that. The International Monetary Fund, the World Bank, the Africa Commission, the Group of Eight and the Group of 20, and specifically the government of the UK, have all expressed concern about the impact of the crisis on the world’s poorest countries, and the importance of assisting the poor countries to weather this storm – significantly together with a commitment to assist. We ourselves need to be more proactive in our approach. We must all take stock, review our policies and priorities, make our needs, yes demands, felt, and do whatever we can, as individual economies and as regional blocs, to cope with this crisis, to ride out this economic tsunami. We hope that the discussions over the next few days will provide food for thought as to how we can proceed – together.

As we look forward to what promises to be an informative and useful seminar, I encourage you all to “think outside the box”, as they say, and participate to the fullest, particularly in the discussions generated by the presentations as we proceed.

Again, welcome, and thank you for coming!!!